Ingenious t-shirt brands, cryptocurrency events, somewhat suspicious ads about aesthetic treatments, an offer to earn money by filling out surveys… Just a walk through Twitter reveals that, indeed, its main advertisers have left.
The arrival just over a month ago of Elon Musk at the head of the social network, the instability it has generated and his decisions regarding freedom of expression and the return of accounts that had been closed have made Twitter a controversial place. . And yes, advertising is sometimes controversial, but the most established brands and, therefore, the ones that invest the most money, tend to shy away from it.
The case of Apple has been the latest blow to the waterline of Twitter’s income, which had already seen how other large advertisers stopped betting on their advertising. Which was, by the way, one of the least optimized compared to those offered by, for example, Meta or Google.
That sparked a back-and-forth scuffle from Musk. Apple was until last week the biggest advertiser on Twitter. A report from Washington Post indicates that Apple was the company that spent the most on advertising during the first quarter of 2022 with an investment of 48 million dollars. Those from Cupertino led the list and generated 4% of the total revenue of the social network during that period.
Musk already issued a letter to advertisers shortly after arriving, and in one of his meetings with workers he did not rule out the risk of bankruptcy. To solve it, it is planned to turn it towards the new Twitter Blue or generate payment and subscription tools, but these are still crumbs compared to the advertising pie. In fact, this very week he has announced a bonus for super advertisers in order for them to return to the platform.
The question may be: To what extent can this untenable situation be endured by Twitter, now a private company?
Twitter accounts before Elon
Now it’s going to be hard to determine the status of the company. Twitter no longer has to file regular financial reports for being public, which are crucial tools in determining a company’s financial health.
Advertising accounted for 90% of the 5.1 billion dollars that Twitter generated as revenue in the last annual earnings report. The second most important amount was the 572 million dollars that it obtained for data licenses. Twitter has always had profitability problems. It was lukewarm in 2019 for the last time and had previously lost money in 10 of the last 12 years.
The decisions that many companies make about whether or not to advertise next year can be decisive.
The company’s net loss was reduced in 2021, to 221.4 million dollars after losing a whopping 1,140 million the previous year, in 2020 of the pandemic, also complicated for the advertising market.
We close this review of their accounts with the fact that Musk paid his 44,000 million dollars through Twitter, of which he assumed 13,000 million dollars of debt and paid another 27,000 million from his cash, which he obtained with a loan backed by Tesla shares and left by outside investors.
If Twitter were to file for bankruptcy, it’s possible that the $27 billion she put up by pooling her money and borrowing it would go with her.
Doesn’t seem like a good starting point.
And the accounts with Musk and his enormous debt
Musk said early last month that Twitter was losing $4 million a day. For now, it seems that it has room for action to support it using its own resources, but the decisions that are made in many companies these weeks for next year can be decisive. The term given by some analysts consulted by wsj who dare to quantify it is from 6 months to a year.
The crisis also comes at a time that is usually when agencies close large advertiser budgets to close campaigns and annual budgets. These deals represent more than 30% of Twitter’s advertising revenue in the United States, according to The Wall Street Journal.
To generate the 5,000 million that Twitter enters from subscription advertising, 625 million users would need to sign up for Twitter Blue. Twitter does not reach 250 million active users
And although the layoffs are a drastic measure to reduce costs, it seems difficult for the accounts to come out if this is maintained in the long term.
Some analyzes estimate that layoffs of about 3,700 people could save the company about $860 million a year, if departing employees earn an average of about $233,000 a year, the median salary figure at Twitter.
It is difficult to calculate the margin of action, but the new sources of income seem to take time to give a significant sum. Twitter Blue’s test days barely generated 6.4 million for the social network. Now a funny calculation: to generate the 5,000 million that Twitter enters from advertising, 625 million users would need to sign up for Twitter Blue. Twitter does not reach 250 million active users.
But another big problem can be debt. The one that Musk faced, and Twitter, of 13,000 million after executing the purchase shares his cash but also backed by shares. In addition, it is known that part of this debt is of a variable rate, which with the rise in interest rates raises its interest.
The Wall Street Journal He sees as a possible way out that, in a critical situation, Musk replaces part of the debt with his own capital and that of external investors.
To do this, you should persuade potential investors that you have a viable long-term business plan. That step, yes, would end quite safely with a new IPO to refinance and increase spending capacity. Back to the starting box, but with Musk maintaining a greater part of the shares than that 9% with which this soap opera began back in the spring of this year that is ending.